Case Law Update

RIVERSIDE PARK LTD V NHS PROPERTY SERVICES LIMITED [2016] EWHC 1313 (CH)

Until fairly recently it has been a standard condition of a break clause that the tenant needs to provide vacant possession on the break date. Following extensive litigation concerning validity of breaks and vacant possession solicitors acting for tenants have been pushing back on such a condition and instead requiring a condition of ‘returning the property free of occupation’. Some solicitors acting for landlords are still refusing to accept this, particularly where they can rely on heads of terms which state vacant possession is a break condition. However, the case of Riverside Park demonstrates why it is vital for tenants to avoid a vacant possession condition.

This case concerned a lease granted for a 10 year term in 2008 with a right to break at year 5 which was conditional upon giving 6 months’ notice and vacant possession on the break date. At the same time the lease was granted the tenant was granted a licence to carry out works, which included erecting partitioning. The tenant left the works in place when it vacated and the Court was asked to determine:

1. Were the works tenant fixtures or chattels?
2. If the works were chattels, did the fact they remained at the break date mean that vacant possession hadn’t been given?
3. If they were tenant fixtures, did they have to be removed to provide vacant possession?

Whether an item is a chattel is fact specific and, in this case, the Court held that the partitions were chattels because they were standard demountable partitions.

As the partitions were chattels, did the fact they remained mean that vacant possession hadn’t been given i.e. did they form an impediment which substantially interfered with or prevented the landlord’s possession of the property. The Court held, on the facts that they did substantially interfere with possession, which given the extent of the partitioning was probably not a surprise, but it does serve as a stark warning to tenants.

Although it was not relevant because the partitioning was found to be a chattel, the Court did consider the position if the works had in fact been tenant fixtures. The tenant argued that the works became part of the premises and as the lease and licence only required it to remove the works if requested by the landlord it would not need to remove the partitioning to afford vacant possession on the break date unless there had been such a request (which there wasn’t).

The Court held that the partitioning did not form part of the premises and, in fact, the licence ceased to have effect because the tenant had not complied with all of its conditions (including to carry out the works in accordance with the specification and obtaining insurer consent). As the licence ceased to have effect, the tenant was obliged to remove the works in any event.

Whilst the decision may seem harsh, we are all aware that break clauses are construed very strictly and this is another reminder to all those acting for tenants be it in negotiating the lease or the heads of terms that breaks can become virtually impossible to exercise without dispute if the conditions leave room for legal argument.

For more information about exercising or challenging break clauses please contact Michael Clark